Credit Risk and the Run-Off definition of Risk-Based Capital Requirements
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Document ID: 2005-796 (previously 2005/010)
Published on: 1st October 2005
Author: Craig Turnbull
A number of insurance groups are using a run-off1 approach to define and assess risk-based capital requirements. At long time horizons, some risk premium assumptions can result in the risk premium dominating the downside risk of the asset class at relevant percentiles, leading to negative capital requirements. This note discusses the extent to which this effect is observed in credit risk.
